Did you know that only 54% of people in the US have life insurance coverage? Many people don’t realize that buying life insurance is an essential part of their long-term financial plan. Life insurance guarantees that your family will get a sum of money when you die, and the amount they receive depends on the policy you choose now.
If you’re looking to buy life insurance, it can be overwhelming at first. There are many types of life insurance plans available, and understanding the differences will help you make the best decisions for your family’s future.
Keep reading to learn about the different types of life insurance available to figure out which one is best for you!
Term Life Insurance
Term life insurance is a policy you purchase for a specific period, usually 10 or 15 years, but you can find term life insurance policies for up to 30 years.
Most term life insurance policies are renewable at the end of the term, but some aren’t, so you’ll need to make sure you read the policy you choose carefully.
Term life insurance is typically the cheapest of all life insurance policies, and you can get different coverage amounts depending on the type of policy you choose. Though term life insurance is more affordable, your premiums are still based on your health, age, and life expectancy.
You’ll pay premiums toward the policy, and if your death occurs during the term, the insurance company will pay your beneficiary a specific amount of money known as a death benefit.
You can get different types of term life insurance which include:
Decreasing term life insurance is a renewable type of term life insurance where the coverage decreases over the term at a preset rate. You’ll typically pay the same premium throughout the term, and benefit reductions are annually or monthly.
Convertible term insurance allows you to change your term life insurance policy to a different type of policy, like a whole life insurance policy. With a convertible term policy, you can make this change without undergoing medical tests to qualify again.
Renewable term life insurance is a one-year term life insurance policy that you can renew at the end of the year for a different rate.
You’ll pay a new premium amount each year based on your age if you renew. This is the best life insurance policy for young adults who want to start out with a low-cost and flexible policy they don’t have to keep long-term.
Permanent Life Insurance
Permanent life insurance offers coverage for your entire life and never expires. You’ll typically pay higher premiums for permanent life insurance than you would for term life insurance.
Permanent life insurance is also based on your age and health, so it’s ideal for you if you’re young and healthy, as you’ll get a guaranteed low premium for the rest of your life.
When you die, your permanent life insurance policy will pay a death benefit to your beneficiaries, depending on your policy type.
Depending on your coverage and financial needs, you can choose different types of permanent life insurance, such as:
Whole Life Insurance
Whole life insurance is one of the most popular types of permanent life insurance. This type of policy not only pays a death benefit but also has a cash value component.
Once you sign up for a whole life insurance policy, you typically can’t make changes to the premiums or the death benefits, as these are set up when an insurance company issues you the policy.
The cash value comes from a tax-deferred savings account that’s included in your policy. The interest in this account accrues at a fixed rate over time, and you can withdraw funds if you need cash, but you’ll pay a penalty with interest.
It’s important to realize that most policies only allow you to use the cash value part of the policy while you’re alive. The cash value is separate from the death benefit and doesn’t go to your beneficiaries after you die.
You’ll also need to check if the policy offers paid-up-additions. This allows you to make extra payments, increasing your death benefit.
Universal Life Insurance
Like whole life insurance, universal life insurance also offers both a death benefit and cash value in the policy. However, with universal life insurance, you can make changes to both the death benefit and your premium.
You can get either guaranteed universal life insurance or indexed universal life insurance. With guaranteed universal life insurance, your death benefit is guaranteed, but there is little cash value with the policy.
Indexed universal life insurance has a cash value that’s linked to the stock market, and how much you can gain is written in your policy.
Variable Life Insurance
Variable life insurance is very similar to universal life insurance. This type of insurance is best if you’re looking for a flexible policy with investment options.
You can invest your cash in a fund that you choose, and your death benefits and premiums will typically fluctuate. This type of life insurance also has no guaranteed minimum cash value or death benefit.
Joint Life Insurance
Joint life insurance is a policy that covers two people. Usually, married couples purchase this type of insurance, but you don’t have to be legally married to buy this coverage.
There are two types of joint life insurance which include:
- First-to-die is a type of policy that pays out after one person passes away
- Survivorship policies pay out to a beneficiary after both people pass away
Most of the time, joint life insurance policies are permanent life insurance policies, but you’ll also find joint term life insurance policies available.
Final Expense Insurance
Final expense insurance, also known as burial insurance, is a simplified type of life insurance. These types of life insurance policies only require you to fill out a health questionnaire, and you can skip any medical exams.
If you’re approved, you’ll typically be able to get up to $50,000 of coverage, and you’ll need to have the policy for at least two years before it will pay a death benefit to your beneficiaries.
However, if you have any severe medical problems, smoke, or are over 85, you may not qualify for this type of insurance plan.
The great thing about this type of coverage is that you don’t have to worry about less severe health conditions excluding you from coverage or causing you to pay higher premiums.
Final expense insurance covers costs like:
- Medical costs before your death
- Funeral costs
- Burial or cremation costs
Final expenses insurance is a good option if you’re an older adult in good health looking for a simple policy to cover your funeral costs.
Guaranteed Life Insurance
With guaranteed life insurance, you don’t need to fill out a health form or get a medical exam. As long as you can fill out the application and pay your premiums, you’ll be able to get coverage.
Since this type of policy covers people with severe health conditions, the premiums you pay are more expensive.
You’ll also only be able to get death benefits for up to $25,000, and you’ll need the policy for at least two years before it will pay these benefits.
Guaranteed life insurance covers end-of-life expenses such as medical and funeral costs. This policy is best if you’re older, have poor health, or have a terminal illness that stops you from qualifying for any other type of policy.
Group Life Insurance
Many employers offer group life insurance to their employees, which is a life insurance contract that covers a group of employees.
Group life insurance typically has a limit of $50,000, or it can be up to two times what you make for your annual salary. Group life insurance policies will pay a death benefit to a beneficiary you choose, but this is usually a lower amount. You also don’t need to get a medical exam to get a group life insurance policy.
You’ll pay monthly premiums to keep the policy active, and typically the policies expire after a period of time. Most employers won’t let you keep your group insurance policy active if you leave your job.
While getting group life insurance through your job is a good idea, it’s typically not enough to create solid financial stability for your family because the coverage is so limited.
For more information on life insurance policies, you can click here to get a quote and learn more about what policies are available.
Learn More About the Types of Life Insurance Available
Now that you know more about the types of life insurance available, you’ll better be able to plan for the future and make sure your family has what they need.
Remember to do your research. There are many life insurance options out there, and it’s essential to understand the policy you’re signing up for.
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